Reference no: EM133002419

Research Case - McGee Corporation has convertible bonds that will result in 10,000 additional shares of common stock issued if the bonds are converted. (These bonds have not been converted into common stock as of March 31, 2021). The accountant at McGee remembers the accounting rule that potentially convertible securities cannot be included in the calculation of Diluted EPS if they are antidilutive but does not recall anything else about the rules for the calculation of Diluted EPS. The accountant is unsure if the potential common shares from the convertible bonds should be included in the calculation of Diluted EPS.

McGee Corporation has the following financial information for the fiscal year ending March 31, 2021:

Loss from Continuing Operations ($44,000)

Loss on Sale of Equipment (22,000)

Net Income/(Loss) ($66,000)

Basic EPS ($2.20)

Diluted EPS

Accounting Issue: Should the potential common shares from the convertible bonds be included in McGee's calculation of Diluted EPS?